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Federal Diary

Postmaster Pleased With Results of Pay-for-Performance System

By Stephen Barr
Tuesday, February 22, 2005; Page B02

Three years ago, Postmaster General John E. Potter jettisoned a controversial bonus program for executives and began steering the U.S. Postal Service toward a pay-for-performance system. The first round of results is in, and Potter likes what he sees.

"People understand their goals. They recognize that their performance affected the outcome. People are motivated to continue improving," he said in a recent interview at his office.

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The average raise under the new system was 5.3 percent, Potter said. The pay system covers about 70,000 executives, postmasters and other employees, and some raises were as high as 10 percent. A few employees "got nothing," Potter said.

Potter abolished the old bonus program, known as EVA for "economic value added," because the Postal Service found it difficult to explain to employees and to Congress. The bonus program also drew criticism inside and outside the Postal Service because the awards appeared inflated at a time when the mail system had slipped into red ink.

In its place, Potter worked with employee groups and set up a program called the "national performance assessment." It is a scorecard for evaluating top postal officials and adjusting their pay based on how well they meet the service's goals.

The old bonus system allowed employees to be measured against a narrow set of goals and raised concerns about favoritism because some goals were set by local managers, Potter said. The new system is more data-driven and based on across-the-board objectives, so that a postmaster in Maryland has the same performance goals as a postmaster in Oregon, he said.

The Postal Service wants promotions and raises to be based on job performance, Potter said, "and the clearest way is to have standardized performance measurements throughout the country, and take the subjectivity as best we can out of the process."

Still, Potter acknowledges, no system can completely take out subjective considerations. He does not want to create a numbers-driven organization that loses sight of larger goals and does not want to foster "managing the wrong way" that leaves rank-and-file employees feeling that they are at the mercy of autocratic bosses, he said.

For example, Potter said, the Postal Service must continually strive to create a safe workplace and lower injury rates. "It is not about the Postal Service; it is about the employee," Potter said. "That is the attitude we are trying to impart to people."

Of the 70,000 postal employees eligible to receive a salary increase, 50.8 percent received the average 5.3 percent raise; 37.6 percent were above the average, and 11.6 percent were below the average, a postal spokesman said.

The average salary for a postal executive this year is $126,800. Typical salaries for postmasters range from $55,900 to $108,900, depending on the size of the community they serve. Field supervisors will be paid an average of $61,000 this year.

The cost of the new pay system has been more than covered by overhead reductions and other cuts, Potter said. The post office has taken $4.3 billion out of its base operations in the past three years, putting it on track to meet and perhaps exceed a plan to cut costs by $5 billion in five years, Potter said.

Overall, the Postal Service has about 703,000 career employees, a reduction from previous years and on par with postal employment in the mid-1980s. Most employees are covered by union contracts, and their labor costs account for three-quarters of post office expenses.

Although Potter has made progress in streamlining some postal operations, he faces a big financial challenge next year. Unless Congress offers relief, a 2003 retirement law requires the Postal Service to deposit $3 billion in an escrow fund and repay the Treasury $1.5 billion to cover pension credits for past military service of postal employees.

"We're working very hard, but I don't know how we would come up with $3 billion," Potter said. "Our pockets are not that deep . . . and our ability to reduce costs are not that great . . . within a given year."

If the Postal Service has to make the payments, it probably will force the postal board of governors to recommend an increase in postage. Industry experts speculate that the price of a first-class stamp, now 37 cents, could go up by 2 cents.

Diary Live

Mary E. Lacey, program executive officer for the National Security Personnel System at the Defense Department, will take questions and comments on the new pay and performance system at noon Wednesday on Federal Diary Live at www.washingtonpost.com. Please join us.

E-mail: barrs@washpost.com

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